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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1997
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-18283
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PINNACLE BANC GROUP, INC.
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(Exact name of registrant as specified in its charter)
Illinois 36-3190818
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2215 York Road, Suite 208, Oak Brook, Illinois 60521
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(Address of principal executive offices)
(630) 574-3550
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS: As of April 30, 1997, the registrant
had 7,549,551 shares outstanding of
common stock, $3.12 par value.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Presented on the following pages are the unaudited consolidated balance
sheets of Pinnacle Banc Group, Inc. and subsidiaries ("Pinnacle") for March
31, 1997 and December 31, 1996, the related consolidated statements of income
and cash flows for the three month periods ended March 31, 1997 and 1996.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments, such as estimated provisions for profit sharing and bonus
arrangements normally determined at year end, considered necessary for a fair
presentation have been included.
Footnote disclosure has been omitted since it would substantially
duplicate the disclosure contained in the latest audited financial statements
of Pinnacle contained in the 1996 Annual Report to Shareholders with the
exception of the pro forma disclosure of the Adoption of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share".
2
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CONSOLIDATED BALANCE SHEETS (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 31 DECEMBER 31
1997 1996
------------ ------------
<S> <C> <C>
ASSETS:
Cash and due from banks. . . . . . . . . . . . . $ 25,795 $ 21,745
Federal funds sold . . . . . . . . . . . . . . . 1,825 1,350
------------ ------------
Total cash and cash equivalents. . . . . . . . 27,620 23,095
Interest-bearing deposits. . . . . . . . . . . . 1,873 3,424
Securities:
Available for sale . . . . . . . . . . . . . . 429,124 434,558
(amortized cost: 3/31/97 - $419,271
12/31/96 - $423,857)
Loans, net of unearned discount. . . . . . . . . 521,117 525,069
Less: Allowance for loan losses . . . . . . . . (7,949) (8,364)
------------ ------------
Net loans. . . . . . . . . . . . . . . . . . . 513,168 516,705
Premises and equipment . . . . . . . . . . . . . 17,254 17,301
Goodwill and other intangibles . . . . . . . . . 24,633 25,366
Other assets . . . . . . . . . . . . . . . . . . 25,399 27,927
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . $1,039,071 $1,048,376
------------ ------------
------------ ------------
LIABILITIES:
Demand deposits:
Noninterest-bearing. . . . . . . . . . . . . . $ 96,468 $ 101,127
Interest-bearing . . . . . . . . . . . . . . . 87,001 88,489
Savings deposits . . . . . . . . . . . . . . . . 297,609 297,399
Other time deposits. . . . . . . . . . . . . . . 383,047 390,537
------------ ------------
Total deposits . . . . . . . . . . . . . . . . 864,125 877,552
Short-term borrowings & FHLB advances. . . . . . 34,781 28,525
Notes payable. . . . . . . . . . . . . . . . . . 33,550 32,800
Other liabilities. . . . . . . . . . . . . . . . 6,326 8,675
------------ ------------
Total liabilities. . . . . . . . . . . . . . . 938,782 947,552
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock. . . . . . . . . . . . . . . . . -0- -0-
1,000 shares authorized, none issued
Common stock, $3.125 par . . . . . . . . . . . . 23,680 23,811
20,000,000 shares authorized; shares issued and
outstanding: 3/31/97: 7,577,420
12/31/96: 7,619,487
Additional paid-in capital . . . . . . . . . . . 38,331 37,980
Retained earnings. . . . . . . . . . . . . . . . 31,776 31,985
Unrealized gain on securities available for sale,
net of tax 6,502 7,048
------------ ------------
Total stockholders' equity . . . . . . . . . . 100,289 100,824
------------ ------------
Total. . . . . . . . . . . . . . . . . . . . . $1,039,071 $1,048,376
------------ ------------
------------ ------------
</TABLE>
3
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS
ENDED MARCH 31
----------------------
1997 1996
----------------------
INTEREST INCOME:
Loans . . . . . . . . . . . . . . . . . . . . . $10,668 $ 6,459
Securities:
Taxable. . . . . . . . . . . . . . . . . . . 5,957 5,302
Tax exempt . . . . . . . . . . . . . . . . . 399 444
Interest-bearing deposits, Federal funds sold
and other. . . . . . . . . . . . . . . . . . 31 101
----------------------
Interest income. . . . . . . . . . . . . . . 17,055 12,306
----------------------
INTEREST EXPENSE:
Deposits:
Interest-bearing demand. . . . . . . . . . . 454 449
Savings. . . . . . . . . . . . . . . . . . . 2,180 1,918
Other time . . . . . . . . . . . . . . . . . 5,385 3,689
Short-term borrowings . . . . . . . . . . . . . 378 2
Notes payable . . . . . . . . . . . . . . . . . 565 357
----------------------
Interest expense . . . . . . . . . . . . . . 8,962 6,415
----------------------
NET INTEREST INCOME. . . . . . . . . . . . . . . . 8,093 5,891
Provision for loan losses. . . . . . . . . . -0- -0-
----------------------
Net interest income after provision for
loan losses. . . . . . . . . . . . . . 8,093 5,891
----------------------
OTHER INCOME:
Banking services and other. . . . . . . . . . . 1,447 1,214
Trust services. . . . . . . . . . . . . . . . . 533 547
Net securities gains. . . . . . . . . . . . . . 1,101 264
----------------------
Other income . . . . . . . . . . . . . . . . 3,081 2,025
----------------------
OTHER EXPENSE:
Salaries, profit sharing and other employee
benefits . . . . . . . . . . . . . . . . . . 3,447 3,011
Occupancy . . . . . . . . . . . . . . . . . . . 709 679
Amortization of goodwill and other intangibles. 595 472
Other operating expenses. . . . . . . . . . . . 2,274 1,503
----------------------
Other expense. . . . . . . . . . . . . . . . 7,025 5,665
----------------------
Income before income taxes . . . . . . . . . . . . 4,149 2,251
Provision for income taxes. . . . . . . . . . . 1,410 694
----------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . $ 2,739 $ 1,557
----------------------
----------------------
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING. . . . . . 7,605,352 6,572,910
EARNINGS PER SHARE . . . . . . . . . . . . . . . . $ 0.36 $ 0.24
4
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FOR THE THREE MONTHS
ENDED MARCH 31
----------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
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Net income . . . . . . . . . . . . . . . . . $ 2,739 $ 1,557
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . 435 352
Amortization of goodwill and other
intangibles . . . . . . . . . . . . . . 595 472
Amortization of purchase accounting
adjustments . . . . . . . . . . . . . . (29) 50
Provision for loan losses. . . . . . . . -0- -0-
Discount accretion . . . . . . . . . . . (367) (5,087)
Premium amortization . . . . . . . . . . 50 49
Gain on sale of securities . . . . . . . (1,101) (264)
Decrease in interest receivable. . . . . 1,553 143
Increase in interest payable . . . . . . 420 172
Decrease (increase) in other assets. . . (2,733) 753
Decrease in other liabilities. . . . . . (1,515) (1,042)
Other, net . . . . . . . . . . . . . . . 149 174
---------- ---------
Total adjustments. . . . . . . . . . (2,543) (4,228)
Net cash provided by (used for)
operating activities. . . . . . . . 196 (2,671)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities. . . . . 367,734 733,653
Proceeds from maturities and paydowns
of securities . . . . . . . . . . . . . 4,420 2,626
Purchase of securities available
for sale . . . . . . . . . . . . . . . . (363,774) (726,861)
Net decrease (increase) in
interest-bearing deposits. . . . . . . . 1,551 (21)
Net loan principal (advanced) collected . 3,952 (8,441)
Premises and equipment expenditures . . . (406) (1,366)
---------- ---------
Net cash provided by (used for)
investing activities. . . . . . . . 13,477 (410)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in total deposits. . . . . . (13,427) (9,412)
Net increase in short-term borrowings . . 6,256 -0-
Proceeds from notes payable . . . . . . . 3,550 2,900
Principal reductions of notes payable . . (2,800) (2,800)
Issuance of common stock. . . . . . . . . 465 132
Purchase and retirement of common stock . (1,506) (842)
Dividends paid. . . . . . . . . . . . . . (1,686) (1,357)
---------- ---------
Net cash used for financing activities (9,148) (11,379)
Net increase (decrease) in cash and cash equivalents 4,525 (14,460)
Cash and cash equivalents at beginning of period 23,095 41,373
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Cash and cash equivalents at end of period . . $ 27,620 $ 26,913
---------- ---------
---------- ---------
CASH PAID DURING PERIOD FOR:
Interest. . . . . . . . . . . . . . . . . $ 8,542 $ 6,242
Income taxes. . . . . . . . . . . . . . . -0- 50
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
EARNINGS PER SHARE:
In February, 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" which superseded Accounting Principles Board
Opinion 15. SFAS No. 128 requires disclosure of basic earnings per share
("EPS"), which replaces primary EPS, and diluted EPS, which was formerly
called fully diluted EPS. Basic EPS does not require dilution for any
potentially dilutive items such as stock options or convertible stock. SFAS
No. 128 is effective for periods ending after December 15, 1997, and
requires, upon adoption, restatement of all prior period EPS data presented.
The adoption of SFAS No. 128 would have had no impact on Pinnacle's reported
earnings per share for the three months ended March 31, 1997 and 1996.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
NET INCOME - THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Consolidated net income was $2,739, or $0.36 per share, on a fully
diluted basis for the three months ended March 31, 1997 (the "first
quarter"), a per share increase of 50% from the $1,557, or $0.24 per share,
earned in the first three months of 1996. The per share amounts are adjusted
for the 3-for-2 stock split payable February 10, 1997. The annualized return
on average assets was 1.07% for the first three months of 1997 and 0.78% for
the first three months of 1996. For each period, the return on average
equity was 11.8% and 8.7%, respectively. Return on average assets and equity
for the same periods, calculated using the effects of SFAS No. 115, would not
be materially different.
The primary factor for the higher earnings was a 37% increase in net
interest income in the first quarter of 1997 compared with the same period of
one year ago. The increase was due to the 28% increase in average earning
assets due to the acquisition of Financial Security Corp. and its subsidiary,
Security Federal Savings and Loan Association of Chicago ("Security").
Additionally, the net interest margin increased to 3.51% compared to 3.33%
for the first three months of 1996. The increase in the net interest margin
was also due to the acquisition which resulted in a greater portion of loans
as a percent of earning assets.
Securities gains were also a significant factor in increased earnings.
Securities gains totalled $1,101,000 compared to $264,000 of a year ago.
Other income, excluding securities gains, increased 12% compared with the
same period of 1996. Other expenses also increased 24%. Both increases were
primarily the result of the acquisition.
NET INTEREST INCOME
The primary component of Pinnacle's consolidated earnings is net interest
income, or the difference between interest income on earning assets and
interest paid on supporting liabilities. The net interest margin is net
interest income expressed as a percentage of average earning assets.
Pinnacle's earning assets consist of loans, securities, interest-bearing
deposits at financial institutions and Federal funds sold. Supporting
liabilities primarily consist of deposits, short-term borrowings and
Pinnacle's notes payable. A portion of Pinnacle's interest income is earned
on tax exempt investments such as state and municipal bonds. In an effort to
state this tax exempt income and its resultant yields on a basis comparable
to all other taxable investments, an adjustment is made to analyze this
income on a taxable equivalent basis.
During the first three months of 1997, Pinnacle's average earning assets
were $946,421, compared to $736,820 from a year ago. The increase was due to
the acquisition. The net interest margin for the first three months of 1997
was 3.51%, up from 3.33% of the same period a year ago. Net interest income
on a fully taxable equivalent basis was $8,315 for the first three months of
1997, or 35% higher than the comparable period in 1996. Actual net interest
income increased 37% as a result of the increase of both the net interest
margin and average earning assets.
The yield earned on total earning assets was 7.30% for the first three
months of 1997 compared to 6.82% for the same period of 1996. The increase
resulted from the increased yield on taxable securities as well as the
increase in the ratio of average loans to total average earning assets to 55%
from 42% of a year ago. The average rate on interest-bearing deposits and
Federal funds sold decreased 147 basis points, as Pinnacle has been in
primarily a purchased funds position for all of 1997. Pinnacle was in a sold
funds position in the first quarter of 1996 which was at a higher interest
7
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rate than current balances in this category. The remaining balances in
interest-bearing funds related to funds held in interest-bearing accounts at
the Federal Home Loan Bank.
The average rate on taxable securities increased 56 basis points to 5.94%
for the first three months of 1997 compared to 5.38% of a year ago. The
increase in the yield on taxable securities was primarily a result of the
higher level of rates paid on these securities compared to those carried a
year ago. The average volume of taxable securities increased $7,024 in the
comparable period, with a decrease on nontaxable securities of $2,350. The
average rate on non-taxable securities remained flat. The rate earned on
loans decreased slightly or 11 basis points. This decrease related primarily
to the acquisition of Security, where most of the loans acquired were real
estate related and are a lower earning type of loan than commercial and
installment type loans. The decrease in the rate earned on loans was,
however, offset by increased volume of loans of $209,480. While the majority
of the loan growth was due to the acquisition, Pinnacle experienced
approximately 14% in internally generated loan growth in the past year, which
continues into the first quarter of 1997.
The average cost of interest-bearing liabilities increased 24 basis
points to 4.30% from 4.06% paid in the first three months of 1996. The
average rate paid on interest-bearing demand deposits remained flat while the
rates paid on savings deposits decreased 13 basis points and the rates paid
on money market deposits increased 16 basis points. The average rate paid on
other time deposits increased 6 basis points to 5.52% from 5.46% of a year
ago. Pinnacle has taken action at appropriate intervals to adjust the rates
on all deposit accounts to keep them in line with market rates as well as to
meet the needs of its particular customer bases. Rates paid on time deposits
have been relatively flat or decreasing since the first quarter of 1996. The
acquisition of Security, however, added a significant portion of other time
deposits at rates higher than those offered by Pinnacle. Management
anticipates a drop in the rates paid on other time deposits as the higher
paying time deposits mature and renew at lower rates or run off. This
decrease was evident as rates paid on these time deposits decreased 16 basis
points from the rate paid of 5.68% in the fourth quarter of 1996. Average
balances in all deposit categories increased due to the acquisition. Absent
the effect of the acquisition, Pinnacle continues to see a switch from
savings deposits into other time deposits.
The average balance in short-term borrowings increased $26,183 due to
increased funding needs due to increased loan demand as well as the
assumption of Security's fixed term advances from the Federal Home Loan Bank.
The average rate paid on notes payable decreased 46 basis points as a
greater portion of the balance of the notes payable is tied to a LIBOR index
which is an index lower than a prime index. The average balance in notes
payable increased approximately $13,620 due to the purchase of equity
securities, the funding of a portion of the acquisition price of Financial
Security, as well as general corporate needs.
A detailed Analysis of Net Interest Income for the three month periods
ended March 31, 1997 and 1996 is included on Page 13.
PROVISION FOR LOAN LOSSES
Management records a provision for loan losses in an amount sufficient to
maintain the allowance for loan losses at a level commensurate with the risks
in the loan portfolio. The allowance for loan losses is adjusted through
charges to current income based on factors such as past loan loss experience,
management's evaluation of known potential losses in the loan portfolio, and
prevailing economic conditions.
There was no provision for loan losses in the first three months of 1997
as well as for the first three months of 1996. Pinnacle had net charge-offs
of $415 in the first three months of 1997 compared to net recoveries of $17
in 1996. The increase in net charge-offs relates primarily to loans charged
off from Security. The allowance for loan losses was $7,949, or 1.53% of
total loans, at March 31, 1997, compared to 1.59% at December 31, 1996.
8
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Total nonperforming assets totalled $10,689, up $346 from a total of
$10,343 at December 31, 1996. Nonperforming assets consisted of $7,671 in
nonaccrual loans, $791 in loans past due greater than 90 days and still
accruing, $1,304 in restructured loans, and $923 in other real estate owned.
Approximately fifty percent of these nonperforming assets resulted from the
acquisition of Security in 1996. The investment in impaired loans at quarter
end includes all nonaccrual loans over $100,000 and restructured loans. All
are included in the above non-performing asset numbers.
Pinnacle maintains a system of review of the credit quality of the loan
portfolio, including the use of an independent credit review system as well
as an internal "Watch List" to identify potential problem loans. Currently,
there are approximately $4,295 in potential problem loans which are
identified through that review process that are not considered nonperforming
and are not included in totals above. Approximately half of these loans are
from Security's portfolio.
NON-INTEREST INCOME AND EXPENSE
The major components of Pinnacle's non-interest income consist of service
charges on deposit accounts and other banking income, trust fees and net
gains or losses on the sale of securities. Fees on banking services and
other income increased $233, primarily due to the acquisition. Trust fees
decreased 3% on a period-to-period basis. Total trust assets under
management amounted to $274,000, or a 12% increase of a year ago.
Net gains on the sale of securities, on a pre-tax basis, were $1,101 in
the first three months of 1997 compared to net gains of $264, in the same
period of 1996. Approximately $915 of the net gains related to the sales of
Pinnacle's U. S. Government securities portfolio and the remaining net gains
were related to the sale of equity securities held by the parent company.
Security sales relating to Pinnacle's U. S. Government securities
portfolio are made as part of Pinnacle's disciplined portfolio funds
management system. The timing of these sales and the determination of the
acceptable maturity for the reinvestment of the proceeds is made dependent on
the slope of the yield curve and management's assessment of the acceptable
interest rate risk for Pinnacle.
Management has always viewed the gains recorded on this program as
closely related to its net interest income as opposed to one-time security
gains or losses. Accordingly, since implementation of the program, the yield
on Pinnacle's U. S. Government portfolio has outperformed the U. S. Treasury
yield by 30 basis points and by including the net gains since inception of
the program, the total yield is 133 basis points higher than the same Index.
Non-interest expense increased 24% for the first three months of 1997
compared to the same period last year. The increase, in expense categories,
related to the acquisition. Employee compensation and benefits increased 14%
with the majority of the increase, or approximately $353, relating to
Security. Occupancy expense increased 4%; the increase related totally to the
acquisition of Security. Goodwill amortization increased 26% due to the
acquisition. Other operating expenses increased 51% to $2,274. Data
processing costs, including deconversion costs of Security when converted to
Pinnacle's data processing system, increased $125. Consulting fees increased
$133 due to payment of consulting services to certain of Security's former
officers. Expenses related to other real estate owned increased $91 due to
added properties related to the acquisition. Other expenses such as
equipment, advertising, supplies and postage also increased due to the
acquisition.
INCOME TAXES
Pinnacle's Federal income tax return is prepared on a consolidated basis
including the accounts of its subsidiary banks. The provision for income
taxes was $1,410 for the first three months of 1997 compared with $694 for
the first three months of 1996. The higher provision for taxes in the first
three months of 1997 was primarily the result of higher pre-tax income in the
first quarter of 1997.
9
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BALANCE SHEET
Total consolidated assets were $1,039,071 at March 31, 1997, or a 1% drop
from year-end 1996.
Total securities were $429,124 at March 31, 1997 and consisted of U. S.
Government securities amounting to $368,394, mortgage-backed securities and
CMO's of $5,625, state and municipal bonds of $21,840, and corporate and
other securities of $33,265. The total securities outstanding at March 31,
1997 was down 1% from year-end 1996, however, the portfolio at quarter-end
retained relatively the same mix.
U. S. Government securities amounted to $368,394, or 35% of assets at
March 31, 1997. The average maturity of these securities was approximately
one year. Certain U. S. Government securities are part of Pinnacle's term
taxable securities strategy which has been designed to manage Pinnacle's
interest rate risk and to take advantage of the slope in the yield curve.
The decision to undertake intermittent sales of these securities is based on
management's assessment of economic conditions. For example, management will
undertake sales of securities based on the slope of the yield curve and its
determination that the reinvestment of the proceeds into a longer or shorter
term security is an acceptable alternative given management's assessment of
interest rate risk. At March 31, 1997, U. S. Government securities had gross
unrealized losses of $(2,644) on a pre-tax basis.
Other securities held by Pinnacle, amounting to $60,730, at March 31,
1997, consisted of mortgage-backed, CMO's, state and municipal, and corporate
and equity securities. At quarter end, these securities had gross unrealized
gains of $13,132 and gross unrealized losses of $(635) on a pre-tax basis.
At quarter end, the equity portfolio of the parent company had appreciation
of $10,760. Currently, Pinnacle is not using derivative products for hedging
or other purposes.
Due to the acquisition of Security, loans are Pinnacle's most significant
balance sheet asset. Total loans amounted to $521,117 at March 31, 1997,
down 1% from year-end 1996. The decrease was primarily due to normal
paydowns at Security. Absent the decrease at Security, loans increased
approximately $3,515. At March 31, 1997, 22% of the loans were commercial,
real estate loans amounted to 67%, and installment loans were 11% of the
portfolio. Pinnacle's loan to asset ratio was 50% at March 31, 1997.
Goodwill and other intangibles amounted to $24,633, or 25% of
stockholders' equity, at March 31, 1997.
Total deposits were $864,125 at March 31, 1997, or 2% lower than year-end
1996. The decrease in deposits was primarily in other time deposits of
$7,490. The drop in other time deposits was due primarily to the runoff of
deposits from Security of $13,698. These deposits were 5-year or 13-month
term higher yielding time deposits that were part of advertising promotions
by Security in previous years. While management attempted to keep certain of
these deposits by offering a higher rate 18-month certificate, certain of
these customers were "rate shoppers" and left for special term deposits at
other financial institutions. Management continues to take an active role to
maintain interest rates at a level which would discourage the
disintermediation of funds. This role has been successful because absent the
runoff of Security other time deposits, other time deposits increased $6,208.
At March 31, 1997, the percentage of total deposits for each category were:
Noninterest-bearing deposits, 11%; Interest-bearing demand deposits, 10%;
Savings accounts (including money market accounts), 34%; and Other time
deposits, 45%.
Pinnacle's notes payable were $33,550 at March 31, 1997. Outstandings
consist of a $15,000 note used for the acquisition of Acorn Financial Corp in
January, 1995; a $15,000 note used partially for the acquisition of Financial
Security and other equity securities; and a revolving line of credit for
corporate needs, of which $3,550 was drawn. At year-end 1996, outstandings
consisted of the same as quarter end, except that $2,800 was drawn on the
line of credit.
10
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CAPITAL RESOURCES
Total stockholders' equity of Pinnacle was $100,289 at March 31, 1997 and
$100,824 at December 31, 1996. The ratio of equity to assets was 9.65% and
9.62% at each period end, respectively.
The Federal Reserve Board ("Board") regulations prescribe capital
requirements for bank holding companies. Pinnacle must have a Leverage
Capital Ratio with a minimum level of Tier One capital to total assets of
3.00%. Tier One capital consists of common stock, additional paid-in
capital, retained earnings and is exclusive of Pinnacle's allowance for loan
losses, goodwill and other intangibles, and unrealized gains (losses) on
securities available for sale. In addition, the Board has issued Risk-Based
Capital Guidelines with a minimum standard of total regulatory capital to
risk weighted assets of 8.00%. The structure of Pinnacle's balance sheet
results in a Risk-Based Capital Ratio significantly in excess of the
guidelines.
The following table provides an analysis of the minimum capital
requirements (as defined), ratios and the excess over the minimum which
Pinnacle holds as capital as of March 31, 1997 (in thousands (except
percentages).
MINIMUM MINIMUM EXCESS
REQUIRED REQUIRED ACTUAL ACTUAL OVER
RATIO AMOUNT RATIO AMOUNT MINIMUM
-------------------------------------------------------
Leverage Capital 3.00% $30,433 7.46% $75,656 $45,223
Risk-based Capital:
Tier One 4.00 19,334 14.31 69,176 49,842
Total (Tier Two) 8.00 38,668 15.57 75,241 36,573
At December 31, 1996, Pinnacle's total risk-based capital ratio was 15.01%.
In addition, each of Pinnacle's subsidiary banks must meet similar
minimum capital requirements as prescribed by Federal and state banking
regulatory authorities. At March 31, 1997, Pinnacle and each of its
subsidiary banks was in compliance with the current capital guidelines and
are considered "well-capitalized" under regulatory standards.
Book value per share was $13.24 at March 31, 1997 compared to $13.23 at
December 31, 1996. Dividends amounting to $0.22 per share were paid in the
first three months of 1997.
LIQUIDITY
As is characteristic of the banking industry, Pinnacle's indicators of
liquidity are principally its deposit base, loan and investment portfolios.
On a short term basis, adjustments are made in these categories based on
deposit fluctuations and loan demand. Longer term, liquidity is determined
by growth objectives, rate pricing policies and the ability to borrow debt or
raise equity. In general, Pinnacle is able to meet deposit withdrawals and
to fund loan demand through earnings and the maturity or sale of securities.
Pinnacle would also be able to respond to short term cash flow needs through
short term borrowings. On a longer term basis, Pinnacle has the ability to
incur debt or to raise equity through the sale of preferred or common stock.
Pinnacle's cash flows are comprised of three general types. Cash flows
from operating activities are primarily Pinnacle's net income. Cash flows
from investing activities consist of loans made to and collected from
customers; and purchases, sales and maturities of securities available for
sale. Cash flows from financing activities are determined by Pinnacle's
deposit base and from Pinnacle's ability to
11
<PAGE>
borrow and repay debt and issue or repurchase stock. For the three months
ended March 31, 1997, cash flows were generated from a $8,380 decrease in
securities, a $3,952 decrease in loans, and a $6,526 increase in short-term
borrowings. Cash flow uses and needs included a $13,427 decrease in
deposits, $1,507 to purchase common stock, and $1,686 to pay dividends.
Pinnacle's net cash position increased $4,524 with the increase primarily in
cash and due from banks.
Pinnacle's subsidiary banks have a relatively stable base of deposits and
any increased loan demand can be sufficiently funded without a material
change in its balance sheet. Pinnacle's corporate strategy includes
profitable acquisitions. Certain acquisitions would be primarily funded with
debt or stock. Reductions of debt would be made from Pinnacle's earnings.
At March 31, 1997, Pinnacle had a line of credit of $5,000 with an
unaffiliated bank from which $3,550 had been drawn. The remaining
outstanding of $30,000 related to acquisitions and equity purchases and is
secured by the stock of Pinnacle's subsidiary banks as well as certain equity
securities of the holding company.
Regulatory requirements exist which influence Pinnacle's liquidity and
cash flow needs. These requirements include the maintenance of satisfactory
capital ratios on a consolidated and subsidiary bank basis, restrictions on
the amount of dividends which a subsidiary bank may pay and reserve
requirements with the Federal Reserve Bank. Based on these restrictions, at
April 1, 1997, bank subsidiaries could have declared approximately $2,627 in
dividends without requesting approval of the applicable Federal or State
regulatory agency. In addition, Pinnacle has made loan commitments which
could result in increased cash flow requirements for loans. Management is of
the opinion that these regulatory requirements and loan commitments will not
have a significant impact on the liquidity of Pinnacle. Management is not
aware of any known trends, events or uncertainties that will have, or that
are reasonably likely to have, a material effect on Pinnacle. Currently,
Pinnacle Bank, a subsidiary of Pinnacle, is in the process of building a new
branch in the far west suburbs of Chicago. The cost of this branch,
including land, is estimated to be approximately $2,000. Management is also
not aware of any current recommendations by the regulatory authorities which,
if implemented, would have an adverse material effect on Pinnacle.
12
<PAGE>
ANALYSIS OF NET INTEREST INCOME
PINNACLE BANC GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
(DOLLARS IN THOUSANDS) MARCH 31, 1997 MARCH 31, 1996
--------------------------------- ---------------------------------
AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Interest-bearing deposits and
Federal funds sold. . . . . . . . . . . . $ 3,481 $ 31 3.56% $ 8,034 $ 101 5.03%
Taxable securities . . . . . . . . . . . . . 400,924 5,957 5.94 393,900 5,302 5.38
Nontaxable securities. . . . . . . . . . . . 20,020 605 12.09 22,370 673 12.03
Loans. . . . . . . . . . . . . . . . . . . . 521,996 10,685 8.19 312,516 6,482 8.30
-------------------------------- --------------------------------
Total interest-earning assets . . . . . . 946,421 17,278 7.30 736,820 12,558 6.82
Noninterest-earning assets:
Cash and due from banks. . . . . . . . . . . 25,033 23,676
Allowance for loan losses. . . . . . . . . . (8,204) (6,031)
Other assets . . . . . . . . . . . . . . . . 66,437 45,105
------------ -----------
Total assets. . . . . . . . . . . . . . . $1,029,687 $799,570
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Interest-bearing demand deposits . . . . . . $ 88,399 $ 454 2.05% $ 88,198 $ 449 2.04%
Savings deposits . . . . . . . . . . . . . . 247,535 1,769 2.86 208,095 1,556 2.99
Money market deposits. . . . . . . . . . . . 48,143 411 3.41 44,622 362 3.25
Other time deposits. . . . . . . . . . . . . 389,961 5,385 5.52 270,366 3,689 5.46
Short-term borrowings. . . . . . . . . . . . 26,307 379 5.76 124 2 6.45
Notes payable. . . . . . . . . . . . . . . . 33,334 565 6.78 19,714 357 7.24
-------------------------------- --------------------------------
Total interest-bearing liabilities. . . . 833,679 8,963 4.30 631,119 6,415 4.06
Noninterest-bearing liabilities:
Demand deposits. . . . . . . . . . . . . . . 96,248 90,233
Other liabilities. . . . . . . . . . . . . . 6,677 6,810
Stockholders' equity . . . . . . . . . . . . 93,083 71,408
------------ -----------
Total liabilities and
stockholders' equity . . . . . . . . . $1,029,687 $799,570
------------ -----------
------------ -----------
Net interest income and margin . . . . . . . . . . $ 8,315 3.51% $ 6,143 3.33%
---------------- ------------------
---------------- ------------------
</TABLE>
Interest income is adjusted to taxable equivalents for the tax-exempt
assets based upon a Federal income tax rate of 34% for 1997. The fully
taxable equivalent adjustment to interest income for the three months ended
March 31, 1997 and 1996 was $222 and $252, respectively. The average balance
on nonaccrual loans is included in the total loans category. The average
balances do not include the effects of SFAS No. 115.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Pinnacle held on April 15, 1997, all of the
proposed Directors listed in the Proxy Statement were elected. Mark P.
Burns, Samuel M. Gilman, Donald G. King, James A. Maddock, and James J.
McDonough received votes totalling 5,983,365 shares, or 78.92% of the
outstanding shares, FOR, 137,429 shares, or 1.81% AGAINST. Albert Giusfredi,
John J. Gleason, John J. Gleason, Jr. and John E. O'Neill received votes
totalling 5,983,230 shares, or 78.91% of the outstanding shares, FOR, 137,564
shares, or 1.81% AGAINST. William J. Finn, Jr., William P. Gleason, and James
R. Phillip, Jr. received votes totalling 5,983,095 shares, or 78.91% of the
outstanding shares, FOR, 137,699 shares, or 1.82% AGAINST. Richard W. Burke
and William C. Nickels received votes totalling 5,925,151 shares, or 78.15%
of the outstanding shares, FOR, 195,643 shares, or 2.58% AGAINST. James L.
Greene and Kenneth C. Whitener, Jr. received votes totalling 5,924,881
shares, or 78.14% of the outstanding shares, FOR, 195,913 shares, or 2.58%
AGAINST. Each of the directors was elected for a term of one year.
A total of 6,120,794 shares, accounting for 80.7% of the outstanding
shares, were represented in person or by proxy at the Annual Meeting.
No other items were voted on at the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed as part of this Form 10-Q.
Description No.
Exhibit Under Item 601 Exhibit
Number of Regulation S-K Description
------- ----------------- -----------
1 (20) Report furnished to
securities holders.
First Quarter Report.
10 (10) Material Contracts.
Employment
Contracts.
27 (27) Financial Data Schedule.
(b) Reports on Form 8-K.
A report on Form 8-K was filed in the first quarter of 1997, dated
January 21, 1997 to report (1) a 3-for-2 stock split effective February 10,
1997; (2) an increase in the annual dividend to $0.88 per share from $0.827
per share on a post-split basis; and (3) authorization to repurchase up to
450,000 post-split shares.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PINNACLE BANC GROUP, INC.
Dated: May 7, 1997 By: /s/ John J. Gleason, Jr.
----------- ----------------------------------
John J. Gleason, Jr.
Director, Vice Chairman and
Chief Executive Officer
By: /s/ Sara J. Mikuta
----------------------------------
Sara J. Mikuta
Chief Financial Officer and Treasurer
15
<PAGE>
- ------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------
EXHIBITS
TO
FORM 10-Q
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
-------------------------------------
PINNACLE BANC GROUP, INC.
(Exact name of registrant as specified in its charter)
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT 1. REPORT FURNISHED TO SECURITIES HOLDERS.
<PAGE>
May 7, 1997
Dear Shareholder:
Pinnacle Banc Group, Inc. reported net income of $2,739,000, or $0.36 per
share on a fully diluted basis, for the first quarter of 1997, an increase of
50% on a per share basis from the $1,557,000, or $0.24 per share, earned in
the first quarter of 1996. The per share data includes the effect of a
3-for-2 stock split which was effective February 10, 1997. The return on
average equity was 11.8% for the first three months of 1997 and the return on
average assets totalled 1.06%.
Total consolidated assets amounted to $1.039 billion, approximately the same
as year end and up 29% from the same quarter end in 1996 as the result of an
acquisition which was completed on September 30, 1996. Total loans were $521
million. Stockholders' equity totalled $100 million at March 31, 1997
resulting in a book value per share of $13.24, an increase of 11% over the
first quarter end of 1996.
Higher net interest income and gains on the sale of investment securities
were the primary factors contributing to the earnings increase. Net interest
income increased 37% in the first quarter of 1997 compared to the first
quarter of the previous year. The higher level of net interest income was
both a product of a 28% increase in earning assets and an improvement in the
net interest margin to 3.51% for the first three months of 1997 compared to
3.33% for the first quarter of 1996. Net gains on the sale of securities
were $1,101,000 in 1997 versus $264,000 recorded in the first three months of
1996. The net gains consisted of $915,000 on the sale of U. S. Treasury
securities as part of Pinnacle's slope program and $186,000 recorded on the
sale of equity securities.
Other operating income was up 12% and other operating expense increased 24%
in the first quarter of 1997 compared with the same quarter of the previous
year. Each of the increases was the result of the acquisition.
Non-performing assets totalled $10,689,000 at March 31, 1997, an increase of
approximately $346,000, or 3%, from the amount at year end. The allowance
for loan losses was $7,949,000, or 1.53% of loans at quarter end.
Non-performing assets at March 31, 1997 were 2.05% of total loans plus other
real estate owned, and amounted to 1.03% of total assets.
At the Board of Directors' meeting on April 15, 1997, the Board declared a
dividend of $0.22 per share payable on May 8 to shareholders of record as of
April 28.
Very truly yours,
/s/ JOHN J. GLEASON, JR.
John J. Gleason, Jr.
Vice Chairman and
Chief Executive Officer
<PAGE>
PINNACLE BANC GROUP, INC.
FINANCIAL HIGHLIGHTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED MARCH 31
---------------------------------------
1997 1996 % CHANGE
---------- ---------- ----------
INCOME STATEMENT
Net interest income $ 8,093 $ 5,891 37%
Provision for loan losses 0 0 0
Net securities gains 1,101 264 N/M
Non-interest income 1,980 1,761 52
Non-interest expense 7,025 5,665 24
Provision for income taxes 1,410 694 N/M
Net income 2,739 1,557 76
BALANCE SHEET (END OF PERIOD)
Total assets $1,039,071 $807,489 29
Loans 521,117 318,032 64
Portfolio funds 432,822 428,009 1
Deposits 864,125 703,392 23
Debt 33,550 20,700 62
Stockholders' equity 100,289 77,935 29
PER SHARE DATA
Earnings per share $ 0.36 $ 0.24 50
Book value 13.24 11.93 11
Dividends 0.22 0.21 5
Cash earnings per share 0.44 0.31 42
Tangible book value 9.98 9.07 10
RATIOS
Return on average equity 11.8 % 8.7 %
Return on average assets 1.06 0.78
Net interest margin 3.51 3.33
Non-performing assets / total assets 1.03 0.92 12
MARKET DATA
Stock price range
(DURING THE QUARTER):
High $23.50 $22.67
Low 18.67 20.33
Close 21.88 21.33 3
Annual dividend rate 0.88 0.83 6
<PAGE>
EXHIBIT 10.a. MATERIAL CONTRACTS.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of the 21st day of January 1997, by and between PINNACLE BANC GROUP, INC.,
an Illinois bank holding company with its main office located in Oakbrook,
Illinois ("Pinnacle"), and John J. Gleason, Jr. (the "Executive").
RECITALS
A. The Executive is currently serving as the Chief Executive Officer
of Pinnacle. For a number of years he has borne significant management
responsibilities for Pinnacle.
B. Pinnacle desires to continue to employ the Executive as an
Officer of Pinnacle and the Executive is willing to continue such employment
upon the terms and conditions set forth in this Agreement.
C. Pinnacle recognizes that circumstances may arise in which a
change of control in Pinnacle or all of its subsidiaries through acquisition
or otherwise may occur thereby causing uncertainty of employment without
regard to the competence or past contributions of the Executive which
uncertainty may result in the loss of valuable services of the Executive for
the benefit of Pinnacle. Pinnacle and the Executive wish to provide
reasonable security to the Executive against changes in the employment
relationship if there is any such change in control.
AGREEMENTS
In consideration of the premises and of the covenants and agreements
hereinafter contained, it is covenanted and agreed by and between the parties
hereto as follows:
1. POSITION AND DUTIES. Pinnacle hereby employs the Executive as the
Chief Executive Officer of Pinnacle or in such other senior executive
capacity as shall be mutually agreed between Pinnacle and the Executive.
During the period of the Executive's employment hereunder, the Executive
shall devote his best efforts and full business time, energy, skills and
attention to the business and affairs of Pinnacle. The Executive shall have
the powers necessary to perform his duties and shall be provided such
supporting services, staff, secretarial and other assistance as shall be
reasonably necessary and appropriate in the light of such duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
be eligible for other benefits:
a. BASE COMPENSATION. The Executive shall receive an annual salary
as determined from time to time by the Board of
<PAGE>
Directors of Pinnacle. Said salary shall be subject to review annually
commencing in 1998.
b. INCENTIVE COMPENSATION. In addition to the salary provided
for in Section 2(a) hereof, Pinnacle may pay incentive compensation to the
Executive in recognition for services rendered by the Executive which
Pinnacle deems, in its discretion, to be extraordinary (such payments,
collectively "Incentive Compensation.")
c. OTHER BENEFITS. The Executive shall be entitled, to the
extent he is eligible therefore, to participate in all plans and benefits
generally accorded to employees of Pinnacle.
d. WITHHOLDING. Pinnacle shall be entitled to withhold from
amounts payable to the Executive hereunder, any federal, state or local
withholding or other taxes or charges which from time to time it is required
to withhold. Pinnacle shall be entitled to rely upon the opinion of its legal
counsel with regard to any question concerning the amount or requirement of
any such withholding.
e. VACATIONS. The Executive shall be entitled to such vacation
time annually as is regularly made available to other officers of Pinnacle
pursuant to the regular vacation policy of Pinnacle, which vacation shall be
taken at such time or times as are mutually agreed to by Pinnacle and the
Executive.
3. REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed, upon
submission of appropriate vouchers and support documentation, for all travel,
entertainment and other out-of-pocket expenses reasonably and necessarily
incurred by the Executive in the performance of his duties hereunder which
are consistent with Pinnacle's policies and practices.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced
and may hereafter produce and have access to material, records, data, trade
secrets and information not generally available to the public (collectively,
"Confidential Information") regarding Pinnacle and its subsidiaries and
affiliates. Accordingly, during and subsequent to the termination of this
Agreement, the Executive shall hold in confidence and not directly or
indirectly disclose, use, copy, or make lists of any such Confidential
Information, except to the extent that such information is or thereafter
becomes lawfully available from public sources, or such disclosure is
authorized in writing by Pinnacle, required by law or any regulatory agency
or judicial authority, or otherwise as reasonably necessary or appropriate in
connection with the performance by the Executive of his duties hereunder.
All records, files, documents and other materials or copies thereof relating
to Pinnacle, shall not be removed from Pinnacle's premises
-2-
<PAGE>
without its written consent, and shall be promptly returned to Pinnacle upon
termination of the Executive's employment hereunder. The Executive agrees to
abide by Pinnacle's policies, as in effect from time to time, respecting
avoidance of interests conflicting with those of Pinnacle.
5. TERMS AND CONDITIONS.
a. BASIC TERM. This Agreement shall take effect on the date
hereof (the "Effective Date"), and the Executive's employment hereunder shall
continue until terminated upon thirty (30) days prior written notice by
either Pinnacle or the Executive for any reason deemed appropriate by
Pinnacle or the Executive provided however the Executive's employment cannot
be terminated by Pinnacle pursuant to the provisions of this subparagraph
upon or after there occurs a Change of Control as defined by subparagraph e
below. Upon termination of employment pursuant to the provisions of this
Agreement, the Executive shall receive all compensation described in
paragraph 2 hereof vested through the effective date of termination of
employment and the compensation described in subparagraph e below if
applicable.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by
Pinnacle for cause as defined below. "Cause" shall mean: (i) the Executive's
death or his Disability (as defined below); (ii) a material violation by the
Executive of any applicable law or regulation respecting the business of
Pinnacle; (iii) the Executive being found guilty of a felony, an act of
dishonesty in connection with the performance of his duties as an officer of
Pinnacle or an act which disqualifies the Executive from serving as an
officer of Pinnacle; or (iv) the willful or negligent failure of the
Executive to perform his duties hereunder in any material respect. The
Executive shall be entitled to at least thirty (30) days' prior written
notice of Pinnacle's intention to terminate his employment for cause (except
the Executive's death) specifying the grounds for such termination, the
action necessary to cure any conduct or act of Executive, if curable in the
sole judgment of Pinnacle, and the availability of the opportunity to present
to the Board of Directors of Pinnacle (the "Board") his position regarding
any dispute relating to the existence of such cause.
c. TERMINATION UPON DEATH. If payments are due and owing under
this Agreement at the death of the Executive, payment shall be made to such
beneficiary as the Executive may designate in writing, or failing such
designation, to the executor of his estate, in full settlement and
satisfaction of all claims and demands on behalf of the Executive under this
Agreement. Such payments shall be in addition to any other death benefits
provided by Pinnacle for the benefit of the Executive.
-3-
<PAGE>
d. TERMINATION UPON DISABILITY. Pinnacle may terminate the
Executive's employment after having been advised by a physician selected by
Pinnacle of the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties under this Agreement
and which continues for a period of at least 90 consecutive days. The
Executive shall be entitled to the compensation and benefits provided for
under this Agreement for the period in which the Executive is unable to work
due to a physical or mental infirmity and until Pinnacle terminates the
Executive's employment after having established his Disability.
e. TERMINATION UPON CHANGE OF CONTROL.
i) If the Executive's employment hereunder is terminated by the
Executive or by Pinnacle within one year of a Change in Control (as
defined below), the Executive shall be entitled to immediate receipt from
Pinnacle of a lump sum payment equal to one dollar ($1.00) less than the
sum of: (A) three (3) times the base compensation then payable to the
Executive pursuant to Section 2(a) hereof, plus (B) three (3) times the
average incentive compensation paid to the Executive during the three (3)
previous fiscal years of Pinnacle pursuant to Section 2(b) hereof, plus
(C) three (3) times the value of the contributions that have been made or
credited by Pinnacle for the benefit of the Executive under all employee
retirement plans maintained by Pinnacle for the completed fiscal year of
Pinnacle immediately preceding the termination. In addition, Pinnacle
shall continue to provide coverage for the Executive under the health
program maintained by Pinnacle for a period of twelve (12) months
following termination of the Executive's Employment.
ii) For purposes of this paragraph, the term "Change in Control"
shall mean the following:
(A) The consummation of the acquisition or acquisitions by
any person or affiliated group (as such term is defined
in Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act") other than John J. Gleason, his
spouse, his descendants, or their spouses directly or
indirectly, so that the person or group holds beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of fifty-one (51%) percent or more
of the combined voting power of the then outstanding
voting securities of Pinnacle or Pinnacle Bank, an
Illinois state bank and wholly owned subsidiary of
Pinnacle (Pinnacle Bank); or
-4-
<PAGE>
(B) Approval by Pinnacle's stockholders of: (1) a merger,
consolidation or other transaction involving Pinnacle or
Pinnacle Bank if the persons who are stockholders on the
date the merger or consolidation is approved do not, on
the first date following such merger or consolidation
and as a result thereof, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined
voting power of the then outstanding voting securities
of the entity resulting from such merger, consolidation
or other transaction and in substantially the same
proportion as their ownership of the combined voting
power of Pinnacle's voting securities outstanding on the
date such merger, consolidation or other transaction is
approved; or (2) a complete liquidation or dissolution
or an agreement for the sale or other disposition of all
or substantially all of the assets of Pinnacle or
Pinnacle Bank; or
(C) A sale by Pinnacle of all of the stock of all banking
subsidiaries of Pinnacle and their affiliates.
iii) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because fifty-one percent (51%) or more of
the combined voting power of the then outstanding securities of Pinnacle
is acquired by: (A) a trustee or other fiduciary holding securities under
one or more employee benefit plans maintained for employees of Pinnacle;
or (B) any Affiliate of Pinnacle (as defined below).
f. NOT AN EXCESS PARACHUTE PAYMENT. It is the intention of Pinnacle
and the Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of the Executive under any other agreement or
plan, be deemed to be an "Excess Parachute Payment" as defined in Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), or its
successors. It is agreed that the present value of and payments to or for the
benefit of the Executive in the nature of compensation, receipt of which is
contingent on a Change of Control of Pinnacle (as "Change of Control" is defined
in this Agreement), and to which Section 280G of the Code applies (in the
aggregate "Total Payments") shall not exceed an amount equal to one dollar less
than the maximum amount which Pinnacle may pay without loss of deduction under
Section 280G(a) of the Code. Present value for purposes of this Agreement shall
be calculated in accordance with Section
-5-
<PAGE>
280G(d)(4) of the Code. Within sixty (60) days following the earlier of (A)
the delivery by the Executive of notice of termination or (B) the delivery of
notice to the Executive from Pinnacle of its belief that there is a payment
or benefit due the Executive which will result in an excess parachute payment
as defined in Section 280G of the Code, the Executive and Pinnacle, at
Pinnacle's expense, shall obtain the opinion of such legal counsel and
certified public accountants as are selected by Pinnacle (notwithstanding the
fact that such persons have acted or may also be acting as the legal counsel
or certified public accountants for Pinnacle), which opinions need not be
unqualified, which sets forth (A) the amount of the Base Period Income (as
defined in Section 280G of the Code) of the Executive, (B) the present value
of Total Payments and (C) the amount and present value of any Excess
Parachute Payments. If such opinions conclude that there would be an Excess
Parachute Payment, the payment hereunder or any other payment determined to
be includable in Total Payments shall be modified, reduced or eliminated as
specified by the Executive in writing delivered to Pinnacle within thirty
(30) days of his receipt of such opinions or, if the Executive fails to so
notify Pinnacle, then as Pinnacle shall reasonably determine, so that under
the basis of calculation set forth in such opinions there will be no Excess
Parachute Payment. The provisions of this subparagraph, including the
calculations, notices and opinions provided for herein shall be based upon
the conclusive presumption that (A) the compensation and benefits provided
for in Section 2 hereof and (B) any other compensation earned by the
Executive pursuant to Pinnacle's compensation programs which would have been
paid in any event, are reasonable compensation for services rendered, even
though the timing of such payment is triggered by the Change of Control;
provided, however, that if any such counsel or accountants so request in
connection with the opinions required by this subparagraph, the Executive and
Pinnacle shall obtain, at Pinnacle's expense, and the counsel or accountants
may rely on in providing its opinion, the advice of a firm of recognized
executive compensation consultants as to the reasonableness of any item of
compensation to be received by the Executive. If the provisions of Section
280G and 4999 of the Code are repealed without succession, this subparagraph
shall be of no further force or effect.
g. REGULATORY SUSPENSION AND TERMINATION.
i) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of any of Pinnacle's subsidiaries'
affairs by a notice served under Section 8(e)(3)(12 U.S.C. Section 1818(e)(3))
or 8(g)(12 U.S.C. Section 1818(g)) of the Federal Deposit Insurance Act, as
amended, Pinnacle's obligations under this Agreement shall be suspended as of
the date of service, unless stayed by appropriate proceedings. If the charges
in the notice are dismissed, Pinnacle may in its discretion (A) pay the
Executive all or part of the compensation withheld while their contract
obligations were suspended and (B)
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reinstate (in whole or in part) any of the obligations which were suspended.
ii) If the Executive is removed and/or permanently prohibited
from participating in the conduct of Pinnacle's subsidiaries' affairs by an
order issued under Section 8(e)(12 U.S.C. Section 1818(e)) or 8(g)(12 U.S.C.
Section 1818(g)) of the Federal Deposit Insurance Act, as amended, all
obligations of Pinnacle under this Agreement shall terminate as of the effective
date of the order.
iii) If a subsidiary of Pinnacle is in default as defined in
Section 3(x)(12 U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act,
as amended, all obligations of Pinnacle under this Agreement shall terminate as
of the date of default, but this paragraph shall not affect any vested rights of
the contracting parties.
iv) All obligations of Pinnacle under this Agreement shall be
terminated, except to the extent determined that continuation of the Agreement
is necessary for the continued operation of the institution by the Federal
Deposit Insurance Corporation (the "FDIC"), at the time the FDIC enters into an
agreement to provide assistance to or on behalf of a subsidiary of Pinnacle
under the authority contained in Section 13(c)(12 U.S.C. Section 1823(c)) of the
Federal Deposit Insurance Act, as amended, or when a subsidiary of Pinnacle is
determined by the FDIC to be in an unsafe or unsound condition. Any rights of
the parties that have already vested, however, shall not be affected by such
action.
v) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of any of Pinnacle's affairs by a
notice served by any regulatory agency having authority over Pinnacle,
Pinnacle's obligations under this Agreement shall be suspended as of the date of
service, unless stayed by appropriate proceedings. If the charges in the notice
are dismissed, Pinnacle may in its discretion (A) pay the Executive all or part
of the compensation withheld while their contract obligations were suspended and
(B) reinstate (in whole or in part) any of the obligations which were suspended.
6. NON-COMPETITION COVENANT.
a. RESTRICTIVE COVENANT. Pinnacle and the Executive have jointly
reviewed the lists of depositors and borrowers, and the operations of
Pinnacle's subsidiaries and have agreed that the primary service area of
Pinnacle's subsidiaries' lending and deposit taking functions extends to an
area encompassing a ten mile radius from the main office of Pinnacle Bank and
or any branch office of Pinnacle Bank and its subsidiaries. Therefore, as an
essential ingredient of and in consideration of this Agreement and the
payment of the amounts described in Sections 2 and 5 hereof,
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the Executive hereby agrees that, except with the express prior written
consent of Pinnacle, for a period of one (1) year after the termination of
the Executive's employment with Pinnacle (the "Restrictive Period"), he will
not directly or indirectly compete with the business of Pinnacle, including,
but not by way of limitation, by directly or indirectly owning, managing,
operating, controlling, financing, or by directly or indirectly serving as an
employee, officer or director of or consultant to, or by soliciting or
inducing, or attempting to solicit or induce, any employee or agent of
Pinnacle to terminate employment with Pinnacle and become employed by any
person, firm, partnership, corporation, trust or other entity which owns or
operates, a bank, savings and loan association, credit union or similar
financial institution (a "Financial Institution") within a ten mile radius of
the main office of Pinnacle Bank or any branch office of Pinnacle Bank and
any of its subsidiaries existing at the time of termination (the "Restrictive
Covenant"). If the Executive violates the Restrictive Covenant and Pinnacle
brings legal action for injunctive or other relief, Pinnacle shall not, as a
result of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the Restrictive Covenant. Accordingly, the
Restrictive Covenant shall be deemed to have the duration specified in this
Section 6(a) computed from the date the relief is granted but reduced by the
time between the period when the Restrictive Period began to run and the date
of the first violation of the Restrictive Covenant by the Executive. The
foregoing Restrictive Covenant shall not prohibit the Executive from owning
directly or indirectly capital stock or similar securities which are listed
on a securities exchange or quoted on a national securities exchange which do
not represent more than five percent (5%) of the outstanding capital stock of
any Financial Institution.
b. REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 4 and 6(a) of this
Agreement are reasonable and necessary for the protection of the legitimate
business interests of Pinnacle, that any violation of these restrictions
would cause substantial injury to Pinnacle and such interests, that Pinnacle
would not have entered into this Agreement with the Executive without
receiving the additional consideration offered by the Executive in binding
himself to these restrictions and that such restrictions were a material
inducement to Pinnacle to enter into this Agreement. If there is any
violation or threatened violation of these restrictions, Pinnacle, in
addition to and not in limitation of, any other rights, remedies or damages
available to Pinnacle under this Agreement or otherwise at law or in equity,
shall be entitled to preliminary and permanent injunctive relief to prevent
or restrain any such violation by the Executive and any and all persons
directly or indirectly acting for or with him, as the case may be.
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7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to a subsidiary or an Affiliate of Pinnacle, such transfer shall
not be deemed to terminate or modify this Agreement and the employing
corporation to which the Executive shall have been transferred shall, for all
purposes of this Agreement, be construed as standing in the same place and
stead as Pinnacle as of the date of such transfer. For purposes of this
Agreement, an Affiliate of Pinnacle shall mean any corporation, partnership
or entity directly or indirectly controlling, controlled by or under common
control with Pinnacle.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of Pinnacle, otherwise than
by and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to transfer, assign, anticipate,
hypothecate or otherwise encumber in advance any of said payments; nor shall
any of such payments be subject to seizure for the payment of any debt,
judgment, or be transferable by operation of law in the event of bankruptcy,
insolvency or otherwise of the Executive.
9. GENERAL PROVISIONS.
a. SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Executive, Pinnacle and his and its
respective personal representatives, successors and assigns, and any
successor or assign of Pinnacle shall be deemed the "Pinnacle" hereunder.
Pinnacle shall require any successor to all or substantially all of the
business and/or assets of Pinnacle, whether directly or indirectly, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as Pinnacle would be required to perform if no such succession had
taken place.
b. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes
the entire agreement between the parties respecting the subject matter
hereof, and supersedes all prior negotiations, undertakings, agreements and
arrangements with respect thereto, whether written or oral. Except as
otherwise explicitly provided herein, this Agreement may not be amended or
modified except by written agreement signed by the Executive and Pinnacle.
c. ENFORCEMENT AND GOVERNING LAW. The provisions of this
Agreement shall be regarded as divisible and separate; if any of said
provisions should be declared invalid or unenforceable by the court of
competent jurisdiction, the validity and enforceability of the remaining
provisions shall not be affected thereby. This Agreement shall be construed
and the legal relations of the parties hereto shall be determined in
accordance with the
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laws of the state of Illinois without reference to the law regarding
conflicts of law.
d. WAIVER. No waiver by either party at any time of any breach
by the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party, shall be deemed a waiver of any
similar or dissimilar provisions or conditions at the same time or any prior
or subsequent time.
e. NOTICES. Notices pursuant to this Agreement shall be in
writing and shall be deemed given when received; and, if mailed, shall be
mailed by United States registered or certified mail, return receipt
requested, postage prepaid; and if to Pinnacle, addressed to the principal
headquarters of Pinnacle, attention: Chairman of the Board; or, if to the
Executive, to the address set forth below the Executive's signature on this
Agreement, or to such other address as the party to be notified shall have
given to the other.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: PINNACLE BANC GROUP, INC.
By: /s/ Richard W. Burke By: /s/ John J. Gleason
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Name: Richard W. Burke Name: John J. Gleason
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Title: Secretary Title: Chairman
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/s/ John J. Gleason, Jr.
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(Signature of Executive)
115 Muirfield Circle
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Wheaton, Illinois 60187
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(Address of Executive)
<PAGE>
Exhibit 10.b
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of the 21st day of January 1997, by and between PINNACLE BANK, an Illinois
bank with its main office located in Cicero, Illinois ("Pinnacle"), PINNACLE
BANC GROUP, INC., an Illinois bank holding company with its main office
located in Oakbrook, Illinois (the "Banc"), and William P. Gleason (the
"Executive").
RECITALS
A. The Executive is currently serving as the President of
Pinnacle, a wholly owned subsidiary of the Banc. For a number of years he
has borne significant management responsibilities for Pinnacle and for the
Banc.
B. The Banc desires that Pinnacle continue to employ the Executive
as an Officer of Pinnacle and the Executive is willing to continue such
employment upon the terms and conditions set forth in this Agreement.
C. Pinnacle recognizes that circumstances may arise in which a
change of control in Pinnacle or all of its subsidiaries through acquisition
or otherwise may occur thereby causing uncertainty of employment without
regard to the competence or past contributions of the Executive which
uncertainty may result in the loss of valuable services of the Executive for
the benefit of Pinnacle. Pinnacle and the Executive wish to provide
reasonable security to the Executive against changes in the employment
relationship if there is any such change in control.
D. The Banc joins in this Agreement to assure the Executive that
the Banc will honor the obligations of Pinnacle set forth in paragraph 5e
hereof if Pinnacle fails to do so.
AGREEMENTS
In consideration of the premises and of the covenants and agreements
hereinafter contained, it is covenanted and agreed by and between the parties
hereto as follows:
1. POSITION AND DUTIES. Pinnacle hereby employs the Executive as the
President of Pinnacle or in such other senior
<PAGE>
executive capacity as shall be mutually agreed between Pinnacle and the
Executive. During the period of the Executive's employment hereunder, the
Executive shall devote his best efforts and full business time, energy,
skills and attention to the business and affairs of Pinnacle and the Banc.
The Executive shall have the powers necessary to perform his duties and shall
be provided such supporting services, staff, secretarial and other assistance
as shall be reasonably necessary and appropriate in the light of such duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
be eligible for other benefits:
a. BASE COMPENSATION. The Executive shall receive an annual salary
as determined from time to time by the Board of Directors of Pinnacle. Said
salary shall be subject to review annually commencing in 1998.
b. INCENTIVE COMPENSATION. In addition to the salary provided for
in Section 2(a) hereof, Pinnacle may pay incentive compensation to the Executive
in recognition for services rendered by the Executive which Pinnacle deems, in
its discretion, to be extraordinary (such payments, collectively "Incentive
Compensation.")
c. OTHER BENEFITS. The Executive shall be entitled, to the extent
he is eligible therefore, to participate in all plans and benefits generally
accorded to employees of Pinnacle.
d. WITHHOLDING. Pinnacle shall be entitled to withhold from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which from time to time it is required to withhold.
Pinnacle shall be entitled to rely upon the opinion of its legal counsel with
regard to any question concerning the amount or requirement of any such
withholding.
e. VACATIONS. The Executive shall be entitled to such vacation time
annually as is regularly made available to other officers of Pinnacle pursuant
to the regular vacation policy of Pinnacle, which vacation shall be taken at
such time or times as are mutually agreed to by Pinnacle and the Executive.
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3. REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed, upon
submission of appropriate vouchers and support documentation, for all travel,
entertainment and other out-of-pocket expenses reasonably and necessarily
incurred by the Executive in the performance of his duties hereunder which are
consistent with Pinnacle's policies and practices.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
may hereafter produce and have access to material, records, data, trade secrets
and information not generally available to the public (collectively,
"Confidential Information") regarding the Banc, Pinnacle and its subsidiaries
and affiliates. Accordingly, during and subsequent to the termination of this
Agreement, the Executive shall hold in confidence and not directly or indirectly
disclose, use, copy, or make lists of any such Confidential Information, except
to the extent that such information is or thereafter becomes lawfully available
from public sources, or such disclosure is authorized in writing by Pinnacle,
required by law or any regulatory agency or judicial authority, or otherwise as
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties hereunder. All records, files, documents and other
materials or copies thereof relating to Pinnacle, shall not be removed from
Pinnacle's premises without its written consent, and shall be promptly returned
to Pinnacle upon termination of the Executive's employment hereunder. The
Executive agrees to abide by Pinnacle's policies, as in effect from time to
time, respecting avoidance of interests conflicting with those of Pinnacle.
5. TERMS AND CONDITIONS.
a. BASIC TERM. This Agreement shall take effect on the date hereof
(the "Effective Date"), and the Executive's employment hereunder shall continue
until terminated upon thirty (30) days prior written notice by either Pinnacle
or the Executive for any reason deemed appropriate by Pinnacle or the Executive
provided however the Executive's employment cannot be terminated by Pinnacle
pursuant to the provisions of this subparagraph upon or after there occurs a
Change of Control as defined by subparagraph E below. Upon termination of
employment pursuant to the provisions of this Agreement, the Executive shall
receive all compensation described in paragraph 2 hereof vested through the
effective date of
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termination of employment and the compensation described in subparagraph e
below if applicable.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by
Pinnacle for cause as defined below. "Cause" shall mean: (i) the Executive's
death or his Disability (as defined below); (ii) a material violation by the
Executive of any applicable law or regulation respecting the business of
Pinnacle; (iii) the Executive being found guilty of a felony, an act of
dishonesty in connection with the performance of his duties as an officer of
Pinnacle or an act which disqualifies the Executive from serving as an officer
of Pinnacle; or (iv) the willful or negligent failure of the Executive to
perform his duties hereunder in any material respect. The Executive shall be
entitled to at least thirty (30) days' prior written notice of Pinnacle's
intention to terminate his employment for cause (except the Executive's death)
specifying the grounds for such termination, the action necessary to cure any
conduct or act of Executive, if curable in the sole judgment of Pinnacle, and
the availability of the opportunity to present to the Board of Directors of
Pinnacle (the "Board") his position regarding any dispute relating to the
existence of such cause.
c. TERMINATION UPON DEATH. If payments are due and owing under this
Agreement at the death of the Executive, payment shall be made to such
beneficiary as the Executive may designate in writing, or failing such
designation, to the executor of his estate, in full settlement and satisfaction
of all claims and demands on behalf of the Executive under this Agreement. Such
payments shall be in addition to any other death benefits provided by Pinnacle
for the benefit of the Executive.
d. TERMINATION UPON DISABILITY. Pinnacle may terminate the
Executive's employment after having been advised by a physician selected by
Pinnacle of the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs the Executive's
ability to substantially perform his duties under this Agreement and which
continues for a period of at least 90 consecutive days. The Executive shall be
entitled to the compensation and benefits provided for under this Agreement for
the period in which the Executive is unable to work due to a physical or mental
infirmity and until Pinnacle terminates
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the Executive's employment after having established his Disability.
e. TERMINATION UPON CHANGE OF CONTROL.
i) If the Executive's employment hereunder is terminated by the
Executive or by Pinnacle within one year of a Change in Control (as
defined below), the Executive shall be entitled to immediate receipt from
Pinnacle of a lump sum payment equal to one dollar ($1.00) less than the
sum of: (A) three (3) times the base compensation then payable to the
Executive pursuant to Section 2(a) hereof, plus (B) three (3) times the
average incentive compensation paid to the Executive during the three (3)
previous fiscal years of Pinnacle pursuant to Section 2(b) hereof, plus
(C) three (3) times the value of the contributions that have been made or
credited by Pinnacle for the benefit of the Executive under all employee
retirement plans maintained by Pinnacle for the completed fiscal year of
Pinnacle immediately preceding the termination. In addition, Pinnacle
shall continue to provide coverage for the Executive under the health
program maintained by Pinnacle for a period of twelve (12) months
following termination of the Executive's Employment.
ii) For purposes of this paragraph, the term "Change in Control"
shall mean the following:
(A) The consummation of the acquisition or acquisitions by
any person or affiliated group (as such term is defined
in Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act") other than John J. Gleason, his
spouse, his descendants, or their spouses directly or
indirectly, so that the person or group holds beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of fifty-one (51%) percent or more
of the combined voting power of the then outstanding
voting securities of Pinnacle or Pinnacle Bank, an
Illinois state bank and wholly owned subsidiary of
Pinnacle (Pinnacle Bank); or
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(B) Approval by Pinnacle's stockholders of: (1) a merger,
consolidation or other transaction involving Pinnacle or
Pinnacle Bank if the persons who are stockholders on the
date the merger or consolidation is approved do not, on
the first date following such merger or consolidation
and as a result thereof, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined
voting power of the then outstanding voting securities
of the entity resulting from such merger, consolidation
or other transaction and in substantially the same
proportion as their ownership of the combined voting
power of Pinnacle's voting securities outstanding on the
date such merger, consolidation or other transaction is
approved; or (2) a complete liquidation or dissolution
or an agreement for the sale or other disposition of all
or substantially all of the assets of Pinnacle or
Pinnacle Bank; or
(C) A sale by Pinnacle of all of the stock of all banking
subsidiaries of Pinnacle and their affiliates.
iii) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because fifty-one percent (51%) or more of
the combined voting power of the then outstanding securities of Pinnacle
is acquired by: (A) a trustee or other fiduciary holding securities under
one or more employee benefit plans maintained for employees of Pinnacle;
or (B) any Affiliate of Pinnacle (as defined below).
iv) To the extent Pinnacle fails to pay the Executive the
payments due him as a result of a Change of Control, Banc will make said
payments to the Executive.
f. NOT AN EXCESS PARACHUTE PAYMENT. It is the intention of Pinnacle
and the Executive that no portion of any
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payment under this Agreement, or payments to or for the benefit of the
Executive under any other agreement or plan, be deemed to be an "Excess
Parachute Payment" as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), or its successors. It is agreed that the
present value of and payments to or for the benefit of the Executive in the
nature of compensation, receipt of which is contingent on a Change of Control
of Pinnacle (as "Change of Control" is defined in this Agreement), and to
which Section 280G of the Code applies (in the aggregate "Total Payments")
shall not exceed an amount equal to one dollar less than the maximum amount
which Pinnacle may pay without loss of deduction under Section 280G(a) of the
Code. Present value for purposes of this Agreement shall be calculated in
accordance with Section 280G(d)(4) of the Code. Within sixty (60) days
following the earlier of (A) the delivery by the Executive of notice of
termination or (B) the delivery of notice to the Executive from Pinnacle of
its belief that there is a payment or benefit due the Executive which will
result in an excess parachute payment as defined in Section 280G of the Code,
the Executive and Pinnacle, at Pinnacle's expense, shall obtain the opinion
of such legal counsel and certified public accountants as are selected by
Pinnacle (notwithstanding the fact that such persons have acted or may also
be acting as the legal counsel or certified public accountants for Pinnacle),
which opinions need not be unqualified, which sets forth (A) the amount of
the Base Period Income (as defined in Section 280G of the Code) of the
Executive, (B) the present value of Total Payments and (C) the amount and
present value of any Excess Parachute Payments. If such opinions conclude
that there would be an Excess Parachute Payment, the payment hereunder or any
other payment determined to be includable in Total Payments shall be
modified, reduced or eliminated as specified by the Executive in writing
delivered to Pinnacle within thirty (30) days of his receipt of such opinions
or, if the Executive fails to so notify Pinnacle, then as Pinnacle shall
reasonably determine, so that under the basis of calculation set forth in
such opinions there will be no Excess Parachute Payment. The provisions of
this subparagraph, including the calculations, notices and opinions provided
for herein shall be based upon the conclusive presumption that (A) the
compensation and benefits provided for in Section 2 hereof and (B) any other
compensation earned by the Executive pursuant to Pinnacle's compensation
programs which would have been paid in any event, are reasonable compensation
for services rendered, even though the timing of such payment is triggered by
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the Change of Control; provided, however, that if any such counsel or
accountants so request in connection with the opinions required by this
subparagraph, the Executive and Pinnacle shall obtain, at Pinnacle's expense,
and the counsel or accountants may rely on in providing its opinion, the
advice of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the Executive.
If the provisions of Section 280G and 4999 of the Code are repealed without
succession, this subparagraph shall be of no further force or effect.
g. REGULATORY SUSPENSION AND TERMINATION.
i) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of Pinnacle's affairs by a notice
served under Section 8(e)(3)(12 U.S.C. Section 1818(e)(3)) or 8(g)(12 U.S.C.
Section 1818(g)) of the Federal Deposit Insurance Act, as amended, Pinnacle's
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, Pinnacle may in its discretion (A) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(B) reinstate (in whole or in part) any of the obligations which were suspended.
ii) If the Executive is removed and/or permanently prohibited
from participating in the conduct of Pinnacle's affairs by an order issued under
Section 8(e)(12 U.S.C. Section 1818(e)) or 8(g)(12 U.S.C. Section 1818(g)) of
the Federal Deposit Insurance Act, as amended, all obligations of Pinnacle under
this Agreement shall terminate as of the effective date of the order.
iii) If Pinnacle is in default as defined in Section 3(x)(12
U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act, as amended, all
obligations of Pinnacle under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
iv) All obligations of Pinnacle under this Agreement shall be
terminated, except to the extent determined that continuation of the Agreement
is necessary for the continued
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operation of the institution by the Federal Deposit Insurance Corporation
(the "FDIC"), at the time the FDIC enters into an agreement to provide
assistance to or on behalf of Pinnacle under the authority contained in
Section 13(c)(12 U.S.C. Section 1823(c)) of the Federal Deposit Insurance
Act, as amended, or when Pinnacle is determined by the FDIC to be in an
unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
6. NON-COMPETITION COVENANT.
a. RESTRICTIVE COVENANT. Pinnacle and the Executive have jointly
reviewed the lists of depositors and borrowers, and the operations of
Pinnacle's subsidiaries and have agreed that the primary service area of
Pinnacle's subsidiaries' lending and deposit taking functions extends to an
area encompassing a ten mile radius from the main office of Pinnacle Bank and
or any branch office of Pinnacle Bank and its subsidiaries. Therefore, as an
essential ingredient of and in consideration of this Agreement and the
payment of the amounts described in Sections 2 and 5 hereof, the Executive
hereby agrees that, except with the express prior written consent of
Pinnacle, for a period of one (1) year after the termination of the
Executive's employment with Pinnacle (the "Restrictive Period"), he will not
directly or indirectly compete with the business of Pinnacle, including, but
not by way of limitation, by directly or indirectly owning, managing,
operating, controlling, financing, or by directly or indirectly serving as an
employee, officer or director of or consultant to, or by soliciting or
inducing, or attempting to solicit or induce, any employee or agent of
Pinnacle to terminate employment with Pinnacle and become employed by any
person, firm, partnership, corporation, trust or other entity which owns or
operates, a bank, savings and loan association, credit union or similar
financial institution (a "Financial Institution") within a ten mile radius of
the main office of Pinnacle Bank or any branch office of Pinnacle Bank and
any of its subsidiaries existing at the time of termination (the "Restrictive
Covenant"). If the Executive violates the Restrictive Covenant and Pinnacle
brings legal action for injunctive or other relief, Pinnacle shall not, as a
result of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the Restrictive Covenant. Accordingly, the
Restrictive Covenant shall be deemed to have the duration specified in this
Section 6(a) computed from the date the relief is granted but
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reduced by the time between the period when the Restrictive Period began to
run and the date of the first violation of the Restrictive Covenant by the
Executive. The foregoing Restrictive Covenant shall not prohibit the
Executive from owning directly or indirectly capital stock or similar
securities which are listed on a securities exchange or quoted on a national
securities exchange which do not represent more than five percent (5%) of the
outstanding capital stock of any Financial Institution.
b. REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 4 and 6(a) of this
Agreement are reasonable and necessary for the protection of the legitimate
business interests of Pinnacle, that any violation of these restrictions would
cause substantial injury to Pinnacle and such interests, that Pinnacle would not
have entered into this Agreement with the Executive without receiving the
additional consideration offered by the Executive in binding himself to these
restrictions and that such restrictions were a material inducement to Pinnacle
to enter into this Agreement. If there is any violation or threatened violation
of these restrictions, Pinnacle, in addition to and not in limitation of, any
other rights, remedies or damages available to Pinnacle under this Agreement or
otherwise at law or in equity, shall be entitled to preliminary and permanent
injunctive relief to prevent or restrain any such violation by the Executive and
any and all persons directly or indirectly acting for or with him, as the case
may be.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to a subsidiary or an Affiliate of Pinnacle, such transfer shall not
be deemed to terminate or modify this Agreement and the employing corporation to
which the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as Pinnacle as
of the date of such transfer. For purposes of this Agreement, an Affiliate of
Pinnacle shall mean any corporation, partnership or entity directly or
indirectly controlling, controlled by or under common control with Pinnacle.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of Pinnacle, otherwise than by
and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to
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transfer, assign, anticipate, hypothecate or otherwise encumber in advance
any of said payments; nor shall any of such payments be subject to seizure
for the payment of any debt, judgment, or be transferable by operation of law
in the event of bankruptcy, insolvency or otherwise of the Executive.
9. GENERAL PROVISIONS.
a. SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Executive, Pinnacle and his and its respective
personal representatives, successors and assigns, and any successor or assign of
Pinnacle shall be deemed the "Pinnacle" hereunder. Pinnacle shall require any
successor to all or substantially all of the business and/or assets of Pinnacle,
whether directly or indirectly, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as Pinnacle would be required to perform if
no such succession had taken place.
b. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and Pinnacle.
c. ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by the court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the state of
Illinois without reference to the law regarding conflicts of law.
d. WAIVER. No waiver by either party at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party,
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<PAGE>
shall be deemed a waiver of any similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
e. NOTICES. Notices pursuant to this Agreement shall be in writing
and shall be deemed given when received; and, if mailed, shall be mailed by
United States registered or certified mail, return receipt requested, postage
prepaid; and if to Pinnacle, addressed to the principal headquarters of
Pinnacle, attention: Chairman of the Board; or, if to the Executive, to the
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: PINNACLE BANC GROUP, INC.
By: /s/ Richard W. Burke By: /s/ John J. Gleason
--------------------------- --------------------------
Name: /s/ Richard W. Burke Name: John J. Gleason
---------------------- ------------------------
Title: Secretary Title: Chairman
---------------------- ------------------------
PINNACLE BANK
By: /s/ John J. Gleason, Jr.
---------------------------
Name: John J. Gleason, Jr.
----------------------
Title: Chairman
----------------------
/s/ William P. Gleason
------------------------------------------
(Signature of Executive)
1120 Park Avenue
------------------------------------------
River Forest, Illinois 60305
------------------------------------------
------------------------------------------
(Address of Executive)
<PAGE>
Exhibit 10.c
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into
as of the 21st day of January 1997, by and between PINNACLE BANK, an Illinois
bank with its main office located in Cicero, Illinois ("Pinnacle"), PINNACLE
BANC GROUP, INC., an Illinois bank holding company with its main office
located in Oakbrook, Illinois (the "Banc"), and Glenn M. Mazade (the
"Executive").
RECITALS
A. The Executive is currently serving as the Executive Vice
President and Chief Credit Officer of Pinnacle, a wholly owned subsidiary of
the Banc. For a number of years he has borne significant credit
responsibilities for Pinnacle.
B. The Banc desires that Pinnacle continue to employ the Executive
as an Officer of Pinnacle and the Executive is willing to continue such
employment upon the terms and conditions set forth in this Agreement.
C. Pinnacle recognizes that circumstances may arise in which a
change of control in Pinnacle or all of its subsidiaries through acquisition
or otherwise may occur thereby causing uncertainty of employment without
regard to the competence or past contributions of the Executive which
uncertainty may result in the loss of valuable services of the Executive for
the benefit of Pinnacle. Pinnacle and the Executive wish to provide
reasonable security to the Executive against changes in the employment
relationship if there is any such change in control.
D. The Banc joins in this Agreement to assure the Executive that
the Banc will honor the obligations of Pinnacle set forth in paragraph 5(e)
hereof if Pinnacle fails to do so.
AGREEMENTS
In consideration of the premises and of the covenants and agreements
hereinafter contained, it is covenanted and agreed by and between the parties
hereto as follows:
1. POSITION AND DUTIES. Pinnacle hereby employs the Executive as the
Executive Vice President and Chief Credit Officer
<PAGE>
of Pinnacle or in such other senior executive capacity as shall be mutually
agreed between Pinnacle and the Executive. During the period of the
Executive's employment hereunder, the Executive shall devote his best efforts
and full business time, energy, skills and attention to the business and
affairs of Pinnacle and the Banc. The Executive shall have the powers
necessary to perform his duties and shall be provided such supporting
services, staff, secretarial and other assistance as shall be reasonably
necessary and appropriate in the light of such duties.
2. COMPENSATION. As compensation for the services to be provided by the
Executive hereunder, the Executive shall receive the following compensation and
be eligible for other benefits:
a. BASE COMPENSATION. The Executive shall receive an annual salary
as determined from time to time by the Board of Directors of Pinnacle. Said
salary shall be subject to review annually commencing in 1998.
b. INCENTIVE COMPENSATION. In addition to the salary provided for
in Section 2(a) hereof, Pinnacle may pay incentive compensation to the Executive
in recognition for services rendered by the Executive which Pinnacle deems, in
its discretion, to be extraordinary (such payments, collectively "Incentive
Compensation.")
c. OTHER BENEFITS. The Executive shall be entitled, to the extent
he is eligible therefore, to participate in all plans and benefits generally
accorded to employees of Pinnacle.
d. WITHHOLDING. Pinnacle shall be entitled to withhold from amounts
payable to the Executive hereunder, any federal, state or local withholding or
other taxes or charges which from time to time it is required to withhold.
Pinnacle shall be entitled to rely upon the opinion of its legal counsel with
regard to any question concerning the amount or requirement of any such
withholding.
e. VACATIONS. The Executive shall be entitled to such vacation time
annually as is regularly made available to other officers of Pinnacle pursuant
to the regular vacation policy of Pinnacle, which vacation shall be taken at
such time or times as are mutually agreed to by Pinnacle and the Executive.
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<PAGE>
3. REIMBURSEMENT OF EXPENSES. The Executive shall be reimbursed, upon
submission of appropriate vouchers and support documentation, for all travel,
entertainment and other out-of-pocket expenses reasonably and necessarily
incurred by the Executive in the performance of his duties hereunder which are
consistent with Pinnacle's policies and practices.
4. CONFIDENTIALITY AND LOYALTY. The Executive acknowledges that
heretofore or hereafter during the course of his employment he has produced and
may hereafter produce and have access to material, records, data, trade secrets
and information not generally available to the public (collectively,
"Confidential Information") regarding the Banc, Pinnacle and its subsidiaries
and affiliates. Accordingly, during and subsequent to the termination of this
Agreement, the Executive shall hold in confidence and not directly or indirectly
disclose, use, copy, or make lists of any such Confidential Information, except
to the extent that such information is or thereafter becomes lawfully available
from public sources, or such disclosure is authorized in writing by Pinnacle,
required by law or any regulatory agency or judicial authority, or otherwise as
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties hereunder. All records, files, documents and other
materials or copies thereof relating to Pinnacle, shall not be removed from
Pinnacle's premises without its written consent, and shall be promptly returned
to Pinnacle upon termination of the Executive's employment hereunder. The
Executive agrees to abide by Pinnacle's policies, as in effect from time to
time, respecting avoidance of interests conflicting with those of Pinnacle.
5. TERMS AND CONDITIONS.
a. BASIC TERM. This Agreement shall take effect on the date hereof
(the "Effective Date"), and the Executive's employment hereunder shall continue
until terminated upon thirty (30) days prior written notice by either Pinnacle
or the Executive for any reason deemed appropriate by Pinnacle or the Executive
provided however the Executive's employment cannot be terminated by Pinnacle
pursuant to the provisions of this subparagraph upon or after there occurs a
Change of Control as defined by subparagraph E below. Upon termination of
employment pursuant to the provisions of this Agreement, the Executive shall
receive all compensation described in paragraph 2 hereof vested through the
effective date of
-3-
<PAGE>
termination of employment and the compensation described in subparagraph e
below if applicable.
b. TERMINATION FOR CAUSE. This Agreement may be terminated by
Pinnacle for cause as defined below. "Cause" shall mean: (i) the Executive's
death or his Disability (as defined below); (ii) a material violation by the
Executive of any applicable law or regulation respecting the business of
Pinnacle; (iii) the Executive being found guilty of a felony, an act of
dishonesty in connection with the performance of his duties as an officer of
Pinnacle or an act which disqualifies the Executive from serving as an
officer of Pinnacle; or (iv) the willful or negligent failure of the
Executive to perform his duties hereunder in any material respect. The
Executive shall be entitled to at least thirty (30) days' prior written
notice of Pinnacle's intention to terminate his employment for cause (except
the Executive's death) specifying the grounds for such termination, the
action necessary to cure any conduct or act of Executive, if curable in the
sole judgment of Pinnacle, and the availability of the opportunity to present
to the Board of Directors of Pinnacle (the "Board") his position regarding
any dispute relating to the existence of such cause.
c. TERMINATION UPON DEATH. If payments are due and owing under
this Agreement at the death of the Executive, payment shall be made to such
beneficiary as the Executive may designate in writing, or failing such
designation, to the executor of his estate, in full settlement and
satisfaction of all claims and demands on behalf of the Executive under this
Agreement. Such payments shall be in addition to any other death benefits
provided by Pinnacle for the benefit of the Executive.
d. TERMINATION UPON DISABILITY. Pinnacle may terminate the
Executive's employment after having been advised by a physician selected by
Pinnacle of the Executive's Disability. For purposes of this Agreement,
"Disability" means a physical or mental infirmity which impairs the
Executive's ability to substantially perform his duties under this Agreement
and which continues for a period of at least 90 consecutive days. The
Executive shall be entitled to the compensation and benefits provided for
under this Agreement for the period in which the Executive is unable to work
due to a physical or mental infirmity and until Pinnacle terminates
-4-
<PAGE>
the Executive's employment after having established his Disability.
e. TERMINATION UPON CHANGE OF CONTROL.
i) If the Executive's employment hereunder is terminated by the
Executive or by Pinnacle within one year of a Change in Control (as
defined below), the Executive shall be entitled to immediate receipt from
Pinnacle of a lump sum payment equal to one dollar ($1.00) less than the
sum of: (A) three (3) times the base compensation then payable to the
Executive pursuant to Section 2(a) hereof, plus (B) three (3) times the
average incentive compensation paid to the Executive during the three (3)
previous fiscal years of Pinnacle pursuant to Section 2(b) hereof, plus
(C) three (3) times the value of the contributions that have been made or
credited by Pinnacle for the benefit of the Executive under all employee
retirement plans maintained by Pinnacle for the completed fiscal year of
Pinnacle immediately preceding the termination. In addition, Pinnacle
shall continue to provide coverage for the Executive under the health
program maintained by Pinnacle for a period of twelve (12) months
following termination of the Executive's Employment.
ii) For purposes of this paragraph, the term "Change in Control"
shall mean the following:
(A) The consummation of the acquisition or acquisitions by
any person or affiliated group (as such term is defined
in Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act") other than John J. Gleason, his
spouse, his descendants, or their spouses directly or
indirectly, so that the person or group holds beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the 1934 Act) of fifty-one (51%) percent or more
of the combined voting power of the then outstanding
voting securities of Pinnacle or Pinnacle Bank, an
Illinois state bank and wholly owned subsidiary of
Pinnacle (Pinnacle Bank); or
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<PAGE>
(B) Approval by Pinnacle's stockholders of: (1) a merger,
consolidation or other transaction involving Pinnacle or
Pinnacle Bank if the persons who are stockholders on the
date the merger or consolidation is approved do not, on
the first date following such merger or consolidation
and as a result thereof, own, directly or indirectly,
more than sixty-seven percent (67%) of the combined
voting power of the then outstanding voting securities
of the entity resulting from such merger, consolidation
or other transaction and in substantially the same
proportion as their ownership of the combined voting
power of Pinnacle's voting securities outstanding on the
date such merger, consolidation or other transaction is
approved; or (2) a complete liquidation or dissolution
or an agreement for the sale or other disposition of all
or substantially all of the assets of Pinnacle or
Pinnacle Bank; or
(C) A sale by Pinnacle of all of the stock of all banking
subsidiaries of Pinnacle and their affiliates.
iii) Notwithstanding the foregoing, a Change in Control shall
not be deemed to occur solely because fifty-one percent (51%) or more of
the combined voting power of the then outstanding securities of Pinnacle
is acquired by: (A) a trustee or other fiduciary holding securities under
one or more employee benefit plans maintained for employees of Pinnacle;
or (B) any Affiliate of Pinnacle (as defined below).
iv) To the extent Pinnacle fails to pay the Executive the
payments due him as a result of a Change of Control, the Banc will make said
payments to the Executive.
-6-
<PAGE>
f. NOT AN EXCESS PARACHUTE PAYMENT. It is the intention of
Pinnacle and the Executive that no portion of any payment under this
Agreement, or payments to or for the benefit of the Executive under any other
agreement or plan, be deemed to be an "Excess Parachute Payment" as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), or its successors. It is agreed that the present value of and
payments to or for the benefit of the Executive in the nature of
compensation, receipt of which is contingent on a Change of Control of
Pinnacle (as "Change of Control" is defined in this Agreement), and to which
Section 280G of the Code applies (in the aggregate "Total Payments") shall
not exceed an amount equal to one dollar less than the maximum amount which
Pinnacle may pay without loss of deduction under Section 280G(a) of the Code.
Present value for purposes of this Agreement shall be calculated in
accordance with Section 280G(d)(4) of the Code. Within sixty (60) days
following the earlier of (A) the delivery by the Executive of notice of
termination or (B) the delivery of notice to the Executive from Pinnacle of
its belief that there is a payment or benefit due the Executive which will
result in an excess parachute payment as defined in Section 280G of the Code,
the Executive and Pinnacle, at Pinnacle's expense, shall obtain the opinion
of such legal counsel and certified public accountants as are selected by
Pinnacle (notwithstanding the fact that such persons have acted or may also
be acting as the legal counsel or certified public accountants for Pinnacle),
which opinions need not be unqualified, which sets forth (A) the amount of
the Base Period Income (as defined in Section 280G of the Code) of the
Executive, (B) the present value of Total Payments and (C) the amount and
present value of any Excess Parachute Payments. If such opinions conclude
that there would be an Excess Parachute Payment, the payment hereunder or any
other payment determined to be includable in Total Payments shall be
modified, reduced or eliminated as specified by the Executive in writing
delivered to Pinnacle within thirty (30) days of his receipt of such opinions
or, if the Executive fails to so notify Pinnacle, then as Pinnacle shall
reasonably determine, so that under the basis of calculation set forth in
such opinions there will be no Excess Parachute Payment. The provisions of
this subparagraph, including the calculations, notices and opinions provided
for herein shall be based upon the conclusive presumption that (A) the
compensation and benefits provided for in Section 2 hereof and (B) any other
compensation earned by the Executive pursuant to Pinnacle's compensation
programs which would have been
-7-
<PAGE>
paid in any event, are reasonable compensation for services rendered, even
though the timing of such payment is triggered by the Change of Control;
provided, however, that if any such counsel or accountants so request in
connection with the opinions required by this subparagraph, the Executive and
Pinnacle shall obtain, at Pinnacle's expense, and the counsel or accountants
may rely on in providing its opinion, the advice of a firm of recognized
executive compensation consultants as to the reasonableness of any item of
compensation to be received by the Executive. If the provisions of Section
280G and 4999 of the Code are repealed without succession, this subparagraph
shall be of no further force or effect.
g. REGULATORY SUSPENSION AND TERMINATION.
i) If the Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of Pinnacle's affairs by a notice
served under Section 8(e)(3)(12 U.S.C. Section 1818(e)(3)) or 8(g)(12 U.S.C.
Section 1818(g)) of the Federal Deposit Insurance Act, as amended, Pinnacle's
obligations under this Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, Pinnacle may in its discretion (A) pay the Executive all or part of
the compensation withheld while their contract obligations were suspended and
(B) reinstate (in whole or in part) any of the obligations which were suspended.
ii) If the Executive is removed and/or permanently prohibited
from participating in the conduct of Pinnacle's affairs by an order issued under
Section 8(e)(12 U.S.C. Section 1818(e)) or 8(g)(12 U.S.C. Section 1818(g)) of
the Federal Deposit Insurance Act, as amended, all obligations of Pinnacle under
this Agreement shall terminate as of the effective date of the order.
iii) If Pinnacle is in default as defined in Section 3(x)(12
U.S.C. Section 1813(x)(1)) of the Federal Deposit Insurance Act, as amended, all
obligations of Pinnacle under this Agreement shall terminate as of the date of
default, but this paragraph shall not affect any vested rights of the
contracting parties.
iv) All obligations of Pinnacle under this Agreement shall be
terminated, except to the extent determined that continuation of the Agreement
is necessary for the continued operation of the institution by the Federal
Deposit Insurance
-8-
<PAGE>
Corporation (the "FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of Pinnacle under the authority contained
in Section 13(c)(12 U.S.C. Section 1823(c)) of the Federal Deposit Insurance
Act, as amended, or when Pinnacle is determined by the FDIC to be in an
unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
6. NON-COMPETITION COVENANT.
a. RESTRICTIVE COVENANT. Pinnacle and the Executive have jointly
reviewed the lists of depositors and borrowers, and the operations of
Pinnacle's subsidiaries and have agreed that the primary service area of
Pinnacle's subsidiaries' lending and deposit taking functions extends to an
area encompassing a ten mile radius from the main office of Pinnacle Bank and
or any branch office of Pinnacle Bank and its subsidiaries. Therefore, as an
essential ingredient of and in consideration of this Agreement and the
payment of the amounts described in Sections 2 and 5 hereof, the Executive
hereby agrees that if he receives payments pursuant to Section 5(e) or (f),
hereof, he, except with the express prior written consent of Pinnacle, for a
period of one (1) year after the termination of the Executive's employment
with Pinnacle (the "Restrictive Period"), will not directly or indirectly
compete with the business of Pinnacle, including, but not by way of
limitation, by directly or indirectly owning, managing, operating,
controlling, financing, or by directly or indirectly serving as an employee,
officer or director of or consultant to, or by soliciting or inducing, or
attempting to solicit or induce, any employee or agent of Pinnacle to
terminate employment with Pinnacle and become employed by any person, firm,
partnership, corporation, trust or other entity which owns or operates, a
bank, savings and loan association, credit union or similar financial
institution (a "Financial Institution") within a ten mile radius of the main
office of Pinnacle Bank or any branch office of Pinnacle Bank and any of its
subsidiaries existing at the time of termination (the "Restrictive
Covenant"). If the Executive violates the Restrictive Covenant and Pinnacle
brings legal action for injunctive or other relief, Pinnacle shall not, as a
result of the time involved in obtaining such relief, be deprived of the
benefit of the full period of the Restrictive Covenant. Accordingly, the
Restrictive Covenant shall be deemed to have the duration specified in this
Section 6(a) computed from the date the relief is granted but
-9-
<PAGE>
reduced by the time between the period when the Restrictive Period began to
run and the date of the first violation of the Restrictive Covenant by the
Executive. The foregoing Restrictive Covenant shall not prohibit the
Executive from owning directly or indirectly capital stock or similar
securities which are listed on a securities exchange or quoted on a national
securities exchange which do not represent more than five percent (5%) of the
outstanding capital stock of any Financial Institution.
b. REMEDIES FOR BREACH OF RESTRICTIVE COVENANT. The Executive
acknowledges that the restrictions contained in Sections 4 and 6(a) of this
Agreement are reasonable and necessary for the protection of the legitimate
business interests of Pinnacle, that any violation of these restrictions would
cause substantial injury to Pinnacle and such interests, that Pinnacle would not
have entered into this Agreement with the Executive without receiving the
additional consideration offered by the Executive in binding himself to these
restrictions and that such restrictions were a material inducement to Pinnacle
to enter into this Agreement. If there is any violation or threatened violation
of these restrictions, Pinnacle, in addition to and not in limitation of, any
other rights, remedies or damages available to Pinnacle under this Agreement or
otherwise at law or in equity, shall be entitled to preliminary and permanent
injunctive relief to prevent or restrain any such violation by the Executive and
any and all persons directly or indirectly acting for or with him, as the case
may be.
7. INTERCORPORATE TRANSFERS. If the Executive shall be voluntarily
transferred to a subsidiary or an Affiliate of Pinnacle, such transfer shall not
be deemed to terminate or modify this Agreement and the employing corporation to
which the Executive shall have been transferred shall, for all purposes of this
Agreement, be construed as standing in the same place and stead as Pinnacle as
of the date of such transfer. For purposes of this Agreement, an Affiliate of
Pinnacle shall mean any corporation, partnership or entity directly or
indirectly controlling, controlled by or under common control with Pinnacle.
8. INTEREST IN ASSETS. Neither the Executive nor his estate shall
acquire hereunder any rights in funds or assets of Pinnacle, otherwise than by
and through the actual payment of amounts payable hereunder; nor shall the
Executive or his estate have any power to
-10-
<PAGE>
transfer, assign, anticipate, hypothecate or otherwise encumber in advance
any of said payments; nor shall any of such payments be subject to seizure
for the payment of any debt, judgment, or be transferable by operation of law
in the event of bankruptcy, insolvency or otherwise of the Executive.
9. GENERAL PROVISIONS.
a. SUCCESSORS; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Executive, Pinnacle and his and its respective
personal representatives, successors and assigns, and any successor or assign of
Pinnacle shall be deemed the "Pinnacle" hereunder. Pinnacle shall require any
successor to all or substantially all of the business and/or assets of Pinnacle,
whether directly or indirectly, by purchase, merger, consolidation, acquisition
of stock, or otherwise, by an agreement in form and substance satisfactory to
the Executive, expressly to assume and agree to perform this Agreement in the
same manner and to the same extent as Pinnacle would be required to perform if
no such succession had taken place.
b. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire agreement between the parties respecting the subject matter hereof, and
supersedes all prior negotiations, undertakings, agreements and arrangements
with respect thereto, whether written or oral. Except as otherwise explicitly
provided herein, this Agreement may not be amended or modified except by written
agreement signed by the Executive and Pinnacle.
c. ENFORCEMENT AND GOVERNING LAW. The provisions of this Agreement
shall be regarded as divisible and separate; if any of said provisions should be
declared invalid or unenforceable by the court of competent jurisdiction, the
validity and enforceability of the remaining provisions shall not be affected
thereby. This Agreement shall be construed and the legal relations of the
parties hereto shall be determined in accordance with the laws of the state of
Illinois without reference to the law regarding conflicts of law.
d. WAIVER. No waiver by either party at any time of any breach by
the other party of, or compliance with, any condition or provision of this
Agreement to be performed by the other party,
-11-
<PAGE>
shall be deemed a waiver of any similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
e. NOTICES. Notices pursuant to this Agreement shall be in writing
and shall be deemed given when received; and, if mailed, shall be mailed by
United States registered or certified mail, return receipt requested, postage
prepaid; and if to Pinnacle, addressed to the principal headquarters of
Pinnacle, attention: Chairman of the Board; or, if to the Executive, to the
address set forth below the Executive's signature on this Agreement, or to such
other address as the party to be notified shall have given to the other.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ATTEST: PINNACLE BANC GROUP, INC.
By: /s/ Richard W. Burke By: /s/ John J. Gleason, Jr.
--------------------------- --------------------------
Name: Richard W. Burke Name: John J. Gleason, Jr.
---------------------- ------------------------
Title: Secretary Title: Vice Chairman & CEO
---------------------- ------------------------
PINNACLE BANK
By: /s/ William P. Gleason
---------------------------
Name: William P. Gleason
----------------------
Title: President
----------------------
/s/ Glenn M. Mazade
------------------------------------------
(Signature of Executive)
4143 Cummor Road
------------------------------------------
Downers Grove, Illinois 60515
------------------------------------------
------------------------------------------
(Address of Executive)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 25,795
<INT-BEARING-DEPOSITS> 1,825
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 429,124
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<INVESTMENTS-MARKET> 429,124
<LOANS> 521,117
<ALLOWANCE> (7,949)
<TOTAL-ASSETS> 1,039,071
<DEPOSITS> 864,125
<SHORT-TERM> 34,781
<LIABILITIES-OTHER> 6,326
<LONG-TERM> 33,550
0
0
<COMMON> 23,680
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<TOTAL-LIABILITIES-AND-EQUITY> 1,039,071
<INTEREST-LOAN> 10,668
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<INTEREST-TOTAL> 17,055
<INTEREST-DEPOSIT> 8,019
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<INTEREST-INCOME-NET> 8,093
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<INCOME-PRETAX> 4,149
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,739
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
<YIELD-ACTUAL> 3.51
<LOANS-NON> 7,671
<LOANS-PAST> 791
<LOANS-TROUBLED> 1,304
<LOANS-PROBLEM> 4,295
<ALLOWANCE-OPEN> 8,364
<CHARGE-OFFS> 483
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</TABLE>
